Study: Only Bulgaria would be hurt by a new Ukraine gas crisis

A new study has found that following the 2009 Ukrainian gas crisis, Europe is better prepared to deal with a such disruption than before. Only Bulgaria would be incapable of substituting imports during a short supply interruption.

According to the executive summary, security of supply has improved since the winter of 2009, when part of Europe remained in the cold due to a pricing dispute between Moscow and Kyiv (see background), and so has the overall resilience of the EU energy network. Several factors are reported to have contributed to this outcome.

First, Europe’s demand has underperformed projections in the last 5 years. This has resulted in infrastructure in place capable of meeting demand levels above current consumption by 100 to 200 bcm. In terms of security of supply, this results in additional spare capacity available in the event of an emergency.

Second, access to alternative supplies has improved. This includes both Russian imports (for example, Nord Stream), as well as alternative supply sources ( LNG and storage). These developments compensate the decrease in EU indigenous gas production which could have posed a threat to Europe’s security of supply.

Third, transmissioncapacity has increased in the 2009-14 period. Greater cross-border capacity allows larger gas volumes to be distributed across Europe in the event of a disruption. Improvements in network infrastructure allow better diversification within the EU Internal Energy Market (IEM).

Fourth, since 2009, Europe has implemented more consistent and ambitious security of supply regulation.

Exposure to Ukrainian transit is regionally limited, with only Bulgaria, out of the EU 28, incapable of substituting imports during a short supply interruption, the report says.

Recently, Bulgarian Prime Minister Boyko Borissov warned Commission President Jean-Claude Juncker of an “energy catastrophe” following the freezing of the South Stream project.

Scenario simulations made by the authors have shown that Ukraine, Bulgaria, Turkey and Macedonia would be hit hardest by a disruption of supplies.

While being largely supplied by Russia, the EU is less vulnerable to a gas disruption through its main import route (Ukraine) than ever before. In 2013, Gazprom sales to the EU 28 represented up to 29% of total EU consumption, and 14% of Europe’s demand was served through Ukraine. Dependence on this corridor is high, but has decreased for both Russia and Europe in the last decade. Between 2005 and 2014, transit through Ukraine has gone from levels of 121 billion cubic metres a year (bcm/y) to levels of 57 bcm. The share of Russian gas to Europe transiting Ukraine has also decreased from levels of 80% in 2005, to 50% in 2013, and 30% in 2014.

The risk of supply disruptions resulting from interruptions in Ukrainian transit is not only lower, but also regionally narrower. Compared to 2009, exposure is geographically more limited and applies only to smaller markets. Out of the five EU natural gas markets with demand above 30 bcm/y (Germany, the UK, Italy, Netherlands, France and Spain), only Italy imported more than 15% of its consumption via Ukraine in 2014. Germany used to be the largest market, and was heavily exposed through this route, but this has changed, with the commissioning of the Nord Stream pipeline. The UK, the Netherlands, France and Spain consume little or no gas routed through Ukraine.

Countries showing a high dependency on Ukrainian transit are all small gas markets with annual consumption below 10 bcm/y. Bulgaria, Hungary, Austria, Slovakia and the Czech Republic import a large share of their consumption via this route, although only Bulgaria is unable to substitute these volumes. In addition, Slovenia and Greece, which show a lower dependency, are experiencing difficulties in substituting imports transiting Ukraine. Finally, Serbia, Macedonia and Bosnia Herzegovina, which were greatly affected by the 2009 disruption, remain highly reliant on Ukraine to supply their domestic markets.

Background

On 31 December 2008, Russia stopped supplying gas to Ukraine over a payment dispute. Russia said Ukraine was stealing natural gas destined for Europe for its own needs. Ukraine denied the charges, but said it needed "technical gas" to pump fuel through the pipeline system.

On 6 January, supplies to Romania, Bulgaria, Greece, Macedonia, Serbia and Croatia were completely halted. It also emerged that several countries, including Bulgaria, did not have enough reserves to make up for a supply cut.

But at a later stage, the conflict left Europe with no supply of Ukrainian gas. At this point, the EU agreed to send observers to monitor the supply of gas earmarked for Europe.

At a summit in Moscow on 17 January 2009, Russian President Vladimir Putin and his Ukrainian counterpart Yulia Tymoshenko struck a deal, saying that the crisis was over. The EU reacted cautiously.

Three days later, on 20 January, supplies to Europe began to flow again. European Commission President José Manuel Barroso welcomed the resumption of deliveries, after a two-week standoff that left millions of Eastern Europeans without heating in the middle of winter. But he also warned that long-term lessons should be drawn from the crisis.